Family incomes stalled in the recession and the ranks of low-income Canadians rose slightly as unemployment climbed, driving home why consumers are still so leery of spending.

The first detailed look at how incomes fared in 2009 shows family earnings, investment incomes and private pensions fell 3.2 per cent, the biggest drop since the early 1990s. But Statistics Canada found that over all, median after-tax incomes held steady as income taxes fell and government transfers rose, largely due to increased Employment Insurance payments.

The total amount of government transfers rose 10 per cent in 2009. But total incomes are compromised of three elements - earnings plus government transfers, minus income tax.

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Wednesday's findings shed light on why consumers are still squeezed - the drop in incomes from earnings and pensions came as Canadians continued to pile on debt. That, on top of rising costs of living for everything from gasoline and food to housing and utilities, helps explain why consumer spending was flat in the first quarter of this year, and is likely to remain muted for months to come.

"Now is when economic reality is starting to set in - we're starting to see consumers gear down and put the brakes on spending," said Toronto-Dominion Bank economist Diana Petramala.

The Statscan analysis shows the recession had a mixed impact on Canadians. The proportion of low-income Canadians rose for the third year in a row - to 9.6 per cent of the population in 2009, or nearly 3.2 million Canadians - after about a decade of falling poverty rates, according to Statistics Canada's after-tax low-income cutoff measure. The absolute number also rose, though marginally.

"I was a bit surprised and thought it might have increased more than it did given the scale of job losses that we experienced during this sharp recession," said Katherine Scott, director of programs and research at the Vanier Institute of the Family. "I think it's important when you get these big surveys with pan-Canadian numbers that Canada is such a diverse community … that often the aggregate numbers hide the reality."

The poverty rate for children also swelled to 9.5 per cent of Canadian kids, or 634,000, from 9 per cent. Increases in poverty rates were particularly acute in Alberta.

Jeffrey Schwartz, executive-director of Consolidated Credit Counseling Services of Canada, said the numbers mirror the frustration he sees on a daily basis from those asking for help managing their debts.

"We're seeing that lower-income Canadians are building debt a lot quicker than people at higher income levels," he said. "They are having trouble with their daily living expenses, such as food and gas, and typically not saving a lot. And they will get into deeper trouble for that, because they don't have the income to support it."

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On the flip side, poverty among seniors dropped, and is the lowest among all income groups. As well, after-tax low-income rates among single mothers are about half of what they were a decade ago.

Over all, the broad Statistics Canada findings show total incomes holding surprising steady through the downturn. Reasons for that include EI benefits, which were temporarily extended, and infrastructure spending that kicked in part-way through the year, said Armine Yalnizyan, senior economist at the Canadian Centre for Policy Alternatives.

"The government did offset some of the road-kill effect of the recession," she said, adding that the proliferation of lower-paying, temporary jobs created in the recovery will continue to hold consumers back.

But according to Ms. Scott at the Vanier Institute, the scenario has already changed.

"These Statscan numbers reflect what was happening two years ago and it's sometimes hard to bridge that gap between what is happening now," she said. "The big message remains that caution is warranted when it comes to finances and economics."

Tavia Grant has worked at The Globe and Mail since early 2005, covering topics from employment and currency markets to trade, microfinance and Latin American economies. She previously worked for Bloomberg News in Toronto and Zurich, writing on mining, stocks, currencies and secret Swiss bank accounts. More

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